South Sudanese people turn out to hear a speech by their president, Salva Kiir. The South has announced the suspension of oil exports through Sudan. Photograph: Reuters

South Sudan official has said it is shutting down more than 900 oil wells after accusing neighbouring Sudan of stealing its oil.

Pagan Amum, the secretary general of South Sudan's ruling party, said the shutdown would have a big impact on the new nation, which relies heavily on oil revenues, but he would rather see the oil stay in the ground than lose it to Sudan. "That is even worse," he said.

At the centre of the dispute are pipeline fees being charged by Sudan. All of South Sudan's oil currently runs through Sudan's pipelines to Port Sudan for export. Khartoum has asked for $32 per barrel but South Sudan has called this extortion and offered $1 per barrel, which it says is the highest in the world.

The landlocked South on Sunday started to halt oil production after accusing Sudan of stealing $815m worth of its oil. South Sudan broke away from Sudan in July 2011 to form the world's newest country but the neighbours did not agree on oil transit fees.

The shutdown came a day after South Sudan and Kenya signed a memorandum of understanding to build a pipeline from South Sudan's oil fields south to Lamu, on the northern Kenyan coast, where a new port is planned.

The project has been a matter of speculation for the last few years, but South Sudan's oil minister, Stephen Dhieu Dau, said planning would begin as soon as possible. "We do not know exactly when, but the pipeline is a priority for the government," he said.

Amum said the oil shutdown would be completed within two to three days. He said South Sudan was also approaching Ethiopia about developing a new pipeline that would eventually go to port through Djibouti.

While South Sudan is losing large amounts of money by shutting down its oil industry, Sudan is losing money as well and risks losing future revenue if South Sudan completes new pipelines out if its territory.